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7/25/2019 1.Basic Cost Concept
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Course: SYBBA-CSubject Code: 203
Cost & management Accounting
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Unit 1: Basic Cost Concepts
Cost Concept & Classification
Objective of Cost Accounting
Cost Accounting v/s Management Accounting
Cost Accounting v/s Financial Accounting
Cost Centers & Activities
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Classification of Costs
In te !or"s of #eral" $% el"on' ( a classificationas to ma"e to arrive at te "etaile" costs of"epartments' process or oter cost units%)
Important basis of cost classification:1% Classification b* nature or element%
+% Functional Classification
,% Classification on te basis of beavior-% Classification for managerial "ecision & control
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1% Classification b* nature or .lement
.lements of Cost
irect Cost
irect
Material
irect
0abour
irect
.penses
In"irect Cost
In"irect
Material
In"irect
labour
In"irect
.penses
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irect Cost
irect cost are te cost !ic can be convenientl*i"entifie" !it & allocate" to a particular unit of finalpro"uct%
2uc cost are treate" as te cost of te unitpro"uce"%
It is also 3no!n as prime cost or first cost
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Cont4
irect Material:
All material !ic become an integral part of te finise"pro"uct an" !ic can be convenientl* assigne" to specificp*sical unit is calle" "irect material%
.% All primar* pac3aging material
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Cont4
irect 0abour: irect labour cost consist of !ages pai" to !or3ers "irectl*
engage" in manufacturing or an"ing pro"uct' job or process%
irect .penses5 Cargeable .penses6: All epenses oter ten te "irect material or "irect labour tat
as specificall* incurre" for particular job' pro"uct or processare calle" "irect epenses%
.% Cost of special tools' ire carges for a special e7uipment'insurance on special material%
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In"irect Cost
In"irect cost are tose cost !ic can not be assignto an* particular cost unit%
In"irect cost are usuall* incurre" for business as a!ole%
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Cont4
In"irect Material
.% Fuel' 0ubricating oil' 2mall tools etc%
In"irect 0abour ages of general supervisor' inspectors' !or3sop cleaner'
store 3eeper' !atcmen etc%
In"irect .penses 8ent' insurance' canteen' ligting' ospital etc%
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Cont4
A% Factor* overea"sIt inclu"es all in"irect epenses connecte" !it temanufacturing of all pro"uct
.: lubricants' oil' !or3s manger9s salar*' factor* rent' insurance
B% Office & a"ministration overea"sIt inclu"es all in"irect epenses relating to a"ministration &management of an office
.: office rent' office ligting' insurance' salar* of clerical &
eecutive staff%C% 2elling & "istribution overea"s
It inclu"es all in"irect cost connecte" !it mar3eting & sales
.: a"vertising epenses' salar* of salesmen%
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Functional Classification
rime /first /"irect cost: irect Material ; irect 0abour ; irect .penses
Factor* /!or3 /pro"uction /manufacturing cost:
rime Cost ; Factor* overea"s
Cost of pro"uction/office/a"ministration/gross cost of
pro"uction:
Factor* cost ; office & a"ministrative epenses
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Classification on te basis of beaviour
Basis of
Beaviour
=ariable
Cost
Fie"
Cost
2emi>=ariable
Cost
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Cont%%%
=ariable Cost Costs tat ma* var* almost in "irect proportion to te volume of
pro"uction are calle" variable cost% .: irect material' irect 0abour' irect .penses suc as electric
po!er' fuel etc%
Fie" Cost Cost !ic "o not var* !it te level of pro"uction are 3no!n as
fie" cost%
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Cont%%%
2emi>variable cost
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Classification of costs for managerial "ecision & control
Controllable & uncontrollable costs
?ormal & abnormal Costs
Avoi"able & unavoi"able costs
2ut "o!n & sun3 cost
ro"uct cost & perio" costifferential' incremental & "ecremental costs
Out of poc3et cost
Marginal cost
Opportunit* costConversion cost
Bu"get an" stan"ar" cost
Impute" or *potetical cost
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Controllable & uncontrollable costs
Controllable cost
Controllable cost are tose cost !ic can be controlle" or
influence" b* a specifie" person or a level of management%
.: 2alar* of .mplo*ee
Uncontrollable Cost
Cost !ic cannot be controlle" or influence" b* te action of
a specifie" person are 3no!n as uncontrollable costs%
.: taation polic* b* government
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?ormal & abnormal Costs
?ormal Cost
Costs !ic are normall* incurre" at a given level of output are
calle" normal cost%
.: labour !elfare epenses or cost
Abnormal Cost
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Avoi"able & unavoi"able costs
Avoi"able cost
Avoi"able cost are tose costs !ic can be escape" or avoi"e"
.: 8efresment epenses
Unavoi"able cost
Unavoi"able costs are tose !ic cannot be escape" or
eliminate"
.:
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2ut "o!n & sun3 cost
2ut "o!n cost
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ro"uct & perio" cost
ro"uct Cost
Costs !ic are associate" !it pro"uction an" !ic become
part of te pro"uct are calle" pro"uct cost%
.: ra! material' "irect !ages' etc
erio" Cost
Costs !ic are associate" !it perio" for !ic te* incurre"
are calle" perio" cost%
.: rent' insurance' salesmen salar*' etc%
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ifferential' incremental' "ecremental cost
ifferential cost
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Out of poc3et cost
It is tat cost !ic gives rise to costs epen"iture%
Out of poc3et cost are important for price fiation
"uring recession an" !ere ma3e or bu* "ecision isinvolve" .: ersonal use of Compan* lan"line pone
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Marginal Cost
Marginal cost is te cost of pro"ucing one a""itional
unit%
Marginal cost is te total of variable cost onl* an"not fie" cost%
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Opportunit* cost
Opportunit* cost refer to te a"vantages foregone asa result of a"opting one course of action an" not teoter%
.: if an buil"ing is propose" to be use" for a project' teepecte" rent of te buil"ing is te opportunit* cost%
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Conversion cost
It is te cost of converting ra! materials intofinise" pro"ucts%
Conversion cost can be calculate" as te total of"irect labour' "irect epenses an" factor* overea"s%
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Bu"get & stan"ar" cost
Bu"get cost
Bu"get cost are estimate" costs prior to a "efine" perio" of time%
.: cas bu"get
2tan"ar" cost
2tan"ar" cost is a pre"etermine" cost base" on tecnical estimate
for materials' labour an" overea"s for selecte" perio" of time an"
for a prescribe" set of !or3ing con"itions
2tan"ar" cost are base" upon tecnical assessments !ere as
bu"get are base" on istorical costs a"juste" future tren"s%
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Impute" or *potetical cost
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Objective of cost accounting
1%
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Cont%%%
1%
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Cont%%%
+%
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Cont%%%
,% Information for "ecisions:
An important purpose of te cost accounting s*stem is to
provi"e "ata an" special anal*ses for sort & long run "ecision%
Appropriate cost information must be accumulate" to ma3e a
!i"e variet* of sort & long run "ecisions%
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Cost Centres
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